European Warrant

[Fab]

How does it work to exercise (buy the underlying share) when you hold an european warrant. My understanding is that you need to wait until the last day of the warrant. Not very convenient. Is that correct ?

 

[reece55]

Fab
You have it right here - Eruo warrants may only be exercised at expiry - American are at any time. Whilst this is an inconvenience, the market marker will still build the price using a warrant model based on the underlying instrument, so it should not impact you in terms of making or losing your money.

Cheers
Reece

 

[Fab]

Fab
You have it right here - Eruo warrants may only be exercised at expiry - American are at any time. Whilst this is an inconvenience, the market marker will still build the price using a warrant model based on the underlying instrument, so it should not impact you in terms of making or losing your money.

Cheers
Reece

Ok so do I have to talk to my broker on the last day and say that I want to exercise the warrant? That sounds a bit of a problem if for any reason I miss the last day of the warrant and it expires.

 

[reece55]

Well, if you have a full service broker, I suppose yes......

The process isn't that complex - the supplier of the warrant (e.g. Macquarie) should have a copy of an exercise form in the PDS that came with the warrant - you can get this off www.asx.com.au.

However, I just wonder why you want to exercise - I mean, in my experience in trading warrants (be that installment or call/put), I want the leverage - normally I close out before expiry, especially if profits are on the table. Otherwise, you can always roll the warrant into a new series. You may wish to discuss these issues with your broker.

Cheers
Reece

 

[Fab]

Well, if you have a full service broker, I suppose yes......

The process isn't that complex - the supplier of the warrant (e.g. Macquarie) should have a copy of an exercise form in the PDS that came with the warrant - you can get this off www.asx.com.au.

However, I just wonder why you want to exercise - I mean, in my experience in trading warrants (be that installment or call/put), I want the leverage - normally I close out before expiry, especially if profits are on the table. Otherwise, you can always roll the warrant into a new series. You may wish to discuss these issues with your broker.

Cheers
Reece

I am just thinking that as the warrant will give me leverage and I think the PDN shares are going to keep rising in the future then I could exercise the warrant to buy them at a lower price than market price (because of the increase I am expecting before the expiry date) and keep them in my portfolio for the longer term and benefit of the 50% discount if held for over 12 months

 

[wayneL]

I am just thinking that as the warrant will give me leverage and I think the PDN shares are going to keep rising in the future then I could exercise the warrant to buy them at a lower price than market price (because of the increase I am expecting before the expiry date) and keep them in my portfolio for the longer term and benefit of the 50% discount if held for over 12 months

If you ever want to exercise an option or warrant before expiry (whether euro or american) it simply does not make sense to do so unless there is no extrinsic (time) value or there is a dividend in excess of the extrinsic value. You will be forfeiting the extrinsic value of the warrant.

If you want the shares before the expiry date, simply sell the warrant and buy the shares. This way you will capture the extrinsic value.

Cheers

 

[reece55]

Wayne, exactly on the money here - there is absolutely no reason you would exercise before expiry because there would still be time value left...... I have however noticed that some deep in the money options tend to be valued at less than intrinsic value if close to expiry. Fab, might be worth your while having a look at an option pricing model to understand these concepts - the ASX have some good articles that explain this.

Cheers
Reece